Living annuity for SA expats
NEW PRODUCT: 100% INVESTED OFFSHORE VIA ASSET-SWAP MECHANISM WITH MOMENTUM
South Africans living abroad and invested in SA retirement annuities (RAs) will be able to transfer their investment to a living annuity (LA) with full offshore exposure through investment group Sable International.
On retirement, South Africans with RAs can take out a third as a lump sum and transfer the balance to a LA where they can draw down 2.5% to 17.5% per year. Their RAs were invested in portfolios with a maximum of 30% offshore exposure in terms of regulation 28, and while this threshold does not apply to LAs, most providers keep their asset-swap capacity for big corporate clients and high net worth individuals, leaving other investors with a similar threshold to their RAs.
Niel Pretorius at Sable International says 100% of the Sable International Living Annuity will be invested offshore using globally diversified offshore funds, via an asset-swap mechanism with Momentum Life.
Sable identified a problem where clients living internationally sit with retirement income denominated in rands, and with at least 70% of that tied up in the SA economy. Currently, the exchange rate can mean a variance of 10% in a month in the value of their portfolio as well as draw downs.
Sable subsequently structured an agreement with Momentum to give Sable clients 100% offshore exposure. “We are taking the rand out of the equation, and with our portfolios having global exposure, the exposure to the SA economy is typically less than 1% – we are moving the economic risk and the currency mismatch.”
Income, however, is paid in rands, but exposure is limited to the day clients receive it.
“The offshore LA provides a sorely needed solution for expats abroad with significant assets in South African LAs,” says Mike Abbott at Sable International.
“The lack of options available is due to the peculiarities of the SA pension market, which doesn’t allow transfers abroad for pensions.
“That issue, along with asset-swap capacity constraints, which are a function of exchange control, mean offshore-invested LAs aren’t widely available – despite the obvious demand.
“Our solution not only addresses that problem but uses low-cost, cutting-edge investment solutions only available to a limited number of advisors.”
Momentum provides Sable with administration and asset-swap capability, and the funds are put into portfolios designed by Sable and fund manager MitonOptimal in conjunction with local and offshore fund managers.
Sable offers a range of portfolios for seven different risk profiles, mostly in lower-cost smart beta funds, with the option to combine with active funds. Portfolios are designed around 14 000 global securities weighted in a similar fashion to the overall market, with the largest exposure being to the US. The product suits former SA residents with a minimum of R1 million to invest.